Market Heterogeneity and the Distributional Incidence of Soft-drink Taxes: Evidence from France

Market heterogeneity may affect the distributional incidence of soft-drink taxes if households sort by income across markets with different characteristics. We use the Kantar Worldpanel homescan data to analyse the distributional incidence of the 2012 French soda tax on Exact Price Indices (EPIs) that measure consumer welfare from the price, availability and consumption of Sugar-Sweetened Beverages (SSBs) at a local market level. After correcting prices for consumer heterogeneity in preferences, we find that the soda tax had a significant but small national average impact corres- ponding to a pass-through of approximately 40%. Producers and retailers set significantly higher pass-throughs in low-income, less-competitive and smaller markets and for cheaper but less popular brands. Market heterogeneity ultimately has substantial distributional effects, as it accounts for approximately 35% of the difference in welfare variation between low- and high-income consumers